Australian plumbing group Reece Limited is expanding into the United States with a $1.9 billion ($US1.44bn) deal to buy US plumbing distributor MORSCO.
Reece, which also expects to deliver a record 2018 full year result, says the deal will allow it to grow in the multi-billion dollar US plumbing market.
The US plumbing and waterworks market is currently about eight times the size of Australia’s, Reece said in a statement, and is forecast to grow at twice the rate of the Australian market.
MORSCO operates in 16 states across the ‘Sun Belt’ region of the US – the southern states between the east and west coasts – and is a top three supplier in 85 per cent of its markets, Reece said.
The acquisition will be funded through a $560m equity raising and entitlement offer and a $1.51 billion ($US1.14bn) loan, with the deal to be completed in July subject to regulatory approval.
Reece chief executive Peter Wilson said the deal would also allow the company to leverage expertise from MORSCO’s experienced management team lead by CEO Chip Hornsby.
‘By working with this experienced local team led by Chip Hornsby, we are writing the next chapter of Reece’s growth for the benefit of our team, our customers, our suppliers and the long-term wealth generation of our shareholders,’ Mr Wilson said.
Reece will operate MORSCO separately to its Australian and New Zealand businesses and will keep the existing management team in place.
It will deploy several of its own team members to the US to help with collaboration and sharing of industry knowledge and expertise.
The plumbing and bathroom supplier also announced it expects to deliver record full year results in 2018 driven by new branch openings, leveraging of its supply chain, investment in improving and delivering great customer service and an enhanced online offering for both trade and retail customers.
Reece expects sales in the range of $2.65 – $2.7 billion, earnings of between $370 – $380 million, and net profit after tax to be between $223-230 million.
The company’s shares are currently in a trading halt, which will be lifted on Wednesday after the entitlement offer closes, and last traded at $10.75.